Supreme Court confirms broad use of anti-suit injunctions to support arbitration

The UK Supreme Court confirmed on 13 June the broad use of anti-suit injunctions in Ust-Kamenogorsk. I have reported earlier (e.g. here) on the tension between the common law and the ECJ over the use of anti-suit injunctions. The judgment only holds for injunctions served outside of the Brussels-I (and Lugano) States.  The case at issue was peculiar in that no arbitral proceedings had been commenced or were as yet proposed – however the respondent remained concerned that the appellant would seek to bring further court proceedings in Kazakhstan in breach of the contractual agreement that such disputes should be subject to arbitration in London. As a result the respondent continued with the proceedings.

Geert.

Supreme Court Press Release

Background to the appeals. The appellant is the owner of a hydroelectric power plant in Kazakhstan. The respondent is the current operator of that plant. The concession agreement between the parties contains a clause providing that any disputes arising out of, or connected with, the concession agreement are to be arbitrated in London under International Chamber of Commerce Rules. For the purposes of this appeal the parties are agreed that the arbitration clause is governed by English law. The rest of the concession agreement is governed by Kazakh law.

Relations between the owners and holders of the concession have often been strained. In 2004 the Republic of Kazakhstan, as the previous owner and grantor of the concession, obtained a ruling from the Kazakh Supreme Court that the arbitration clause was invalid. In 2009 the appellant, as the current owner and grantor of the concession, brought court proceedings against the respondent in Kazakhstan seeking information concerning concession assets. The respondent’s application to stay those proceedings under the contractual arbitration clause was dismissed on the basis that the Kazakh Supreme Court had annulled the arbitration clause by its 2004 decision.

Shortly thereafter the respondent issued proceedings in England seeking (a) a declaration that the arbitration clause was valid and enforceable and (b) an anti-suit injunction restraining the appellant from continuing with the Kazakh proceedings. An interim injunction was granted by the English Commercial Court and the appellant subsequently withdrew the request for information which was the subject of the Kazakh proceedings. However, the respondent remained concerned that the appellant would seek to bring further court proceedings in Kazakhstan in breach of the contractual agreement that such disputes should be subject to arbitration in London. As a result the respondent continued with the proceedings. The English Commercial Court found that they were not bound to follow the Kazakh court’s conclusions in relation to an arbitration clause governed by English law and refused to do so. The Commercial Court duly granted both the declaratory and final injunctive relief sought.

The appellant appealed to the Supreme Court of the United Kingdom on the grounds that English courts have no jurisdiction to injunct the commencement or continuation of legal proceedings brought in a foreign jurisdiction outside the Brussels Regulation/Lugano regime where no arbitral proceedings have been commenced or are proposed.

Judgment. The Supreme Court unanimously dismisses the appeal. The English courts have a long-standing and well-recognised jurisdiction to restrain foreign proceedings brought in violation of an arbitration agreement, even where no arbitration is on foot or in contemplation. Nothing in the Arbitration Act 1996 (“the 1996 Act”) has removed this power from the courts. The judgment of the court is given by Lord Mance.

Reasons

  • § An arbitration agreement gives rise to a ‘negative obligation’ whereby both parties expressly or impliedly promise to refrain from commencing proceedings in any forum other than the forum specified in the arbitration agreement. This negative promise not to commence proceedings in another forum is as important as the positive agreement on forum [21-26].
  • § Independently of the 1996 Act the English courts have a general inherent power to declare rights and a well-recognised power to enforce the negative aspect of an arbitration agreement by injuncting foreign proceedings brought in breach of an arbitration agreement even where arbitral proceedings are not on foot or in contemplation [19-23].
  • § There is nothing in the 1996 Act which removes this power from the courts; where no arbitral proceedings are on foot or in prospect the 1996 Act neither limits the scope nor qualifies the use of the general power contained in section 37 of the Senior Courts Act 1981 (“the 1981 Act”) to injunct foreign proceedings begun or threatened in breach of an arbitration agreement [55]. To preclude the power of the courts to order such relief would have required express parliamentary provision to this effect [56].
  • § The 1996 Act does not set out a comprehensive set of rules for the determination of all jurisdictional questions. Sections 30, 32, 44 and 72 of the 1996 Act only apply in circumstances where the arbitral proceedings are on foot or in contemplation; accordingly they have no bearing on whether the court may order injunctive relief under section 37 of the 1981 Act where no arbitration is on foot or in contemplation [40].
  • § The grant of injunctive relief under section 37 of the 1981 Act in such circumstances does not constitute an “intervention” as defined in section 1(c) of the 1996 Act; section 1(c) is only concerned with court intervention in the arbitral process [41].
  • § The reference in section 44(2)(e) of the 1996 Act to the power of the court to grant an interim injunction “for the purposes of and in relation to arbitral proceedings” was not intended to exclude or duplicate the court’s general power to grant injunctive relief under section 37 of the 1981 Act [48].
  • Service out of the jurisdiction may be affected under Civil Procedure Rule 62.2 which provides for service out where an arbitration claim affects arbitration proceedings or an arbitration agreement; this provision is wide enough to embrace a claim under section 37 to restrain foreign proceedings brought or continued in breach of the negative aspect of an arbitration agreement [49].

The corporate veil in wedlock – Supreme Court decides Petrodel v Prest on the basis of trust

Update 5 May 2021 see application in Malaysia in Ong Leong Chiou v Keller (M) Sdn Bhd.

Update 12 December 2019 now also confirmed as representing Scots law. See [2019] CSOH 102 OB v A b and another.

Update 21 September 2016. For an application in the environment field, see [2016] EWCA Crim 1043 R v Powell and Westwood and analysis by Robert Biddlecombe, who brought the case to my attention.

Postscript 21 September 2015: Petrodel was applied by the High Court in Wood v Baker. The corporate veil was pierced in a bankruptcy case.

I noted in my post on Eni that the waters remain deep in national law re piercing the corporate veil. Point made by the Supreme Court on 12 June 2013, in Petrodel v Prest (a matrimonial assets case which was decided on the basis of trust), where Lord Neuberger stated obiter  “if piercing the corporate veil has any role to play, it is in connection with evasion”.

Lord Sumption’s take was “there is a limited principle of English law which applies when a person is under an existing legal obligation…which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality“. He added ‘The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.’

Lord Clarke, agreeing with Lord Mance and others, stated “the situations in which piercing the corporate veil may be available as a fall-back are likely to be very rare”.

The focus in the UK is very much a presumption against piercing the veil and leaving the distinct nature of corporations intact – consequently a high burden of proof for those wishing to pierce.

Geert.

Piercing the corporate veil in competition cases – The ECJ in Eni

Update 13 June 2019 for an interesting paper by Anil Yilmaz Vastardis and Rachel Chambers, comparing investment law and the relevant issues for corporate veil and human rights abuses, see here.

Update 21 September 2016. For an application in the environment field, see [2016] EWCA Crim 1043 R v Powell and Westwood and analysis by Robert Biddlecombe, who brought the case to my attention.

Update 20 June 2016 the strict approach was confirmed in C-155/14P Evonik.

There is no general EU rule on the piercing of the corporate veil. Neither company law nor tort law is sufficiently (or in the case of tort law even embryonically) harmonised to be able to speak of much EU influence here. However in EU competition law, the principle is more or less established and may, one suspects, inspire in other areas, too. In Eni, the ECJ confirmed on 8 May the strong presumption of attribution in the case of shareholder control.

It is established case-law under EU competition law that the conduct of a subsidiary may be imputed, for the purposes of the application of Article 101 TFEU, to the parent company particularly where, although having separate legal personality, that subsidiary does not autonomously determine its conduct on the market but mostly applies the instructions given to it by the parent company, having regard in particular to the economic, organisational and legal links which unite those two legal entities. In such a situation, since the parent company and its subsidiary form part of a single economic unit and thus form a single undertaking for the purpose of Article 101 TFEU, the Court has repeatedly held that the Commission may address a decision imposing fines to the parent company without being required to establish its individual involvement in the infringement.

In the particular case in which a parent company holds all or almost all of the capital in a subsidiary which has committed an infringement of the European Union competition rules, there is a rebuttable presumption that that parent company exercises an actual decisive influence over its subsidiary. In such a situation, it is sufficient for the Commission to prove that all or almost all of the capital in the subsidiary is held by the parent company in order to take the view that that presumption is fulfilled.

In addition, in the specific case where a holding company holds 100% of the capital of an interposed company which, in turn, holds the entire capital of a subsidiary of its group which has committed an infringement of European Union competition law, there is also a rebuttable presumption that that holding company exercises a decisive influence over the conduct of the interposed company and also indirectly, via that company, over the conduct of that subsidiary.

In the present case, for the entire duration of the infringement in question, Eni held, directly or indirectly, at least 99.97% of the capital in the companies which were directly active within its group in the sectors in which there had been a violation of competition law. The ECJ held that in particular the absence of management overlap between Eni and the daughter companies, was not enough to rebut the presumption of the companies being a single economic unit. In competition law, therefore, the corporate veil may be quite easily pierced in a holding context, which undoubtedly is not the approach which many Member States take outside of the competition law area.

The waters therefore on the piercing of the corporate veil other than in the area of competition law, remain quite deep. This has an impact on the conflicts area, in particular in the application of the Rome II Regulation and the debate on corporate social responsibility, on which I have reported before on this blog.

Geert.

postscript: point made in e.g. the UKSC on 12 June 2013, in Petrodel v Prest (a matrimonial assets case which was decided on the basis of trust), where Lord Neuberger stated obiter  “if piercing the corporate veil has any role to play, it is in connection with evasion”.

Lord Sumption’s take was “there is a limited principle of English law which applies when a person is under an existing legal obligation…which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality“. He added ‘The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.’

Lord Clarke, agreeing with Lord Mance and others, stated “the situations in which piercing the corporate veil may be available as a fall-back are likely to be very rare”.

 

Flury of WTO domestic regulatory autonomy cases continues: Ontario’s feed-in tariff program illegal

Just before the Christmas break, a WTO Panel ruled at the request of Japan and the EU that Ontario’s feed-in tariff program is illegal under the GATT and TRIMs agreement.  Feed-in tariff programs are a popular means to boost renewable energy. Typically, they imply that producers of renewable energy are nurtured through preferential, long-term and advantageous electricity purchase contracts (either through obliging private electricity distributors to enter into such contracts, such as in the infamous European PreussenElektra case, or such as in the case of Ontario’s law, through employment of a Government Agency which enters into these contracts). Governments are often tempted to throw ‘local content requirements’ into the mix: in the case of Ontario, domestic content requirements must be complied with in the design and construction of the relevant electricity generation facilities utilizing solar photovoltaic and wind power technology in order to qualify for guaranteed electricity prices offered under the FIT Program.

The Panel rejected the EU’s claim with respect to Subsidies, however it did accept that the regime infringed GATT Article III, as well as the Agreement on Trade-Related Investment Measures. The former to me was no great surprise. Infant industry arguments are often made with respect to renewable energy however these do not in my view carry much weight with respect to either solar, wind or hydropower. The finding on TRIMS is encouraging: it shows that the Agreement (I sometimes dub it a mini-MAI) does have some bite.

The EU has had internal issues with feed-in tariffs and the like (see e.g. my paper here on (di)similarities between EU and WTO law on the matter), and (update 5 May 2015) in the UK the Courts are considering the extent to which Article 1 of the first Protocol to the European Conention on Human rights (‘A1P1’), which protects property, shields investors in solar energy from changes in feed-in tariffs.

Geert.